Bank Lending Continues to Fall But Small Businesses Coming Out on Top

Latest figures from the Bank of England of lending to businesses show a continuation in the decline of total money lent to UK businesses. But small businesses appear to slightly better off than their larger corporate counterparts.

The figures to June 2014 reveal that the total amount of loans (including overdrafts) currently outstanding to businesses decreased by £3.4 billion in June, compared to the average monthly decrease of £0.9 billion over the previous six months. This results in a twelve-month fall of -3.8% in the stock of loans currently outstanding in banks.

However, a glimmer of hope for small businesses. Within these figures, loans (including overdrafts) outstanding to small and medium-sized enterprises (SMEs) increased by £0.2 billion, compared to the average monthly decrease of £0.5 billion over the previous six months. So unlike their larger corporate counterparts, UK small business owners are coming out on top.

That said the overall stock of loans advanced to small businesses has contracted by -2.8% over the twelve-months compared to June 2013 but this compares favourably to the overall fall of 3.8% for businesses of all sizes.

One important point to remember is that these figures relate to the amount outstanding at the end of the month i.e. existing loans, plus new money lent in the month, less money paid back during the month. When we delve further into the figures, particularly in relation to small businesses, the amount of new money being lent each month is showing a slight increase,

Monthly New Loans to Small Businesses

April £4.1b
May £4.3b
June £4.8b

Of course, these new loans are being netted off against monthly loan repayments and overdrafts paid down and here we see that small businesses are more or less paying back what they taking in new loans

Monthly Repayments by Small Businesses

April £4.5b
May £4.3b
June £4.7b

The net result looks like this:

Month   New Loans   Repayments   Net Amount

April               £4.1b               £4.5b                   -0.5b

May                 £4.3b              £4.3b                     0.0b

June                £4.8b              £4.7b                     0.1b

So are we seeing early signs of banks stepping back in to the SME market? If so, this growth is being offset by small businesses which would rather pay debt off than take on more; the appetite amongst small businesses to borrow may not as strong as many believe it to be.

Of course the other argument is that the ‘new loans’ figure should be a lot higher resulting in positive growth but it is the banks that don’t have the appetite to lend.

In reality it’s a bit of both!

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